The 20 – second summary
You should read this update if you are a developer who has been experiencing difficulties with the current Community Infrastructure Levy (CIL) regime and in particular in complying with the strict occupancy requirements for existing buildings when trying to claim a discount to your CIL liability.
The Government this week issued a consultation on further reforms to the Community Infrastructure Levy. A number of the 25 consultation questions propose important reforms to the existing CIL regime and if brought into effect should address a number of concerns that developers have raised since the introduction of CIL in 2011.
We consider that the most significant area of consultation is the proposal to remove the vacancy test which developers currently have to pass when claiming a discount from CIL liability when they are either demolishing or refurbishing an existing building as part of their proposals. Currently, for a detailed planning permission, a developer would need to be able to establish that the building had been in lawful use for six of the twelve months before the date that the final pre-commencement condition attached to the planning consent was discharged¹. This is often very late in the day for a developer looking to secure vacant possession, and in our experience is especially problematic in cases with complex site assembly and vacant possession programmes such as commonly occur in central London schemes.
Government’s CIL proposals will mean the end of vacancy test
It has always been accepted by Government that CIL should be a charge on new floorspace. The CIL Regs² contain a detailed formula for calculating the amount of CIL payable based on the amount of floorspace proposed as part of the development and include a discount for existing buildings which are either to be demolished or refurbished as part of the development proposals.
Currently, however, the formula also contains a number of pre-conditions relating to the occupancy of the building which must be met before a developer can qualify for the discount to his CIL liability. The discount cannot be claimed unless the building has been in lawful use for a continuous period of at least six months within the period of twelve months ending on the date that planning permission permits the development. We know that this has led to practical problems for some developers already.
The Government’s reasoning for including this provision was that if a building had been vacant for a long period, bringing it back into use may have an impact on the need for infrastructure to support the new development. However, the consultation paper now accepts that in the real world, with certain developments the property may be vacant for some considerable time (to secure vacant possession, demolition and re-building) and that the vacancy test is sometimes unfairly preventing developers from claiming the discount.
The consultation proposes that the vacancy test should be abolished in all cases save where the use has been abandoned. This means that CIL would normally not be payable on buildings that are refurbished or redeveloped other than where there is an increase in floorspace as part of the proposals, even if they have been vacant for some time. The same principle would apply to demolition of existing buildings.
This important change would allow developers to obtain vacant possession of sites without having to worry about losing their CIL discount if buildings are left empty before planning permission first permits development.
Other proposed changes to the CIL Regs are a positive step in the right direction
Other significant proposals contained in the consultation paper include:
- The period within which local authorities would be able to pool section 106 contributions towards community infrastructure will be extended from April 2014 to April 2015.
- Developers would not face “double dipping” where section 278 highways agreements can be used instead of section 106 agreements to fund highway infrastructure which is also included in a CIL infrastructure list.
- When promoting complex and phased developments (for either full or outline applications), developers can treat multi-phase schemes as separate chargeable developments. This would allow the levy to be paid in phases linked to commencement of different phases of the development rather than all of the charge being due on commencement which should ease cash-flow problems. Currently, this flexibility only applies to phased outline permissions.
- Developers would also benefit from the proposal to extend the existing rules for section 73 permissions to new stand-alone planning applications provided that there is no increase in floorspace under the new proposals. Currently, the CIL Regs ensure that multiple liabilities are not triggered for the same development proposals by allowing credit for previous payments but only in relation to section 73 permissions.³ Under the proposals, if a new application for the existing scheme was brought forward prior to or during its construction, any payments made previously under the original permission could be offset against CIL liability for the new permission.
- Developers should also be able to benefit from proposed changes to the “exceptional circumstances” relief provisions, which are currently so restrictive that they have never been used by local authorities.
¹ For an outline permission, this date is the date of the approval of the final reserved matters in relation to that outline permission and for a phased outline permission, the date of approval of the final reserved matters associated with that particular phase.
² The Community Infrastructure Levy Regulations 2010 (as amended).
³ An application to vary or remove a condition attached to a previous permission.